The Impact of Voluntary Audits A Study on the Impact of Voluntary Audits on the Credit Ratings, Financial Costs, and Profitability of Small Limited Liability Companies in Norway

Abstract

Small limited liability companies in Norway have been allowed to opt out of voluntary audits since May 1, 2011 (Auditors Act, 2020, §2-1). This change aimed to reduce regulatory burdens and achieve cost savings for small businesses. Allowing voluntary audits maintains the opportunity for businesses to demonstrate financial transparency and reliability to stakeholders, including investors, creditors, and partners, who might require audited financial statements. In this study, we explore the effects of the option for voluntary audits on small firms, focusing on credit ratings, financial costs, and profitability. We use a detailed dataset on all businesses in Norway, provided by Proff Forvalt. To conduct the study, we implement various regression techniques and present our results. We find a positive effect of opting for voluntary audits on increased credit ratings. However, we do not find evidence that voluntary audits lead to lower financial costs. Additionally, the results suggest a negative association between voluntary audits and profitability.